Lorenzo Airline Battle Harder Than '83 Flight

By AGIS SALPUKAS

Published: June 28, 1989

At first glance, Frank Lorenzo, the chairman of the Texas Air Corporation, seems to be on comfortably familiar ground.

At Eastern Airlines, just as at Continental Airlines six years ago, Mr. Lorenzo placed striking unions on the defensive and is trying to use the Federal Bankruptcy Code to modify union contracts. Eastern and Continental are Texas Air subsidiaries.

But while there are parallels to the battle in 1983, in many ways Mr. Lorenzo's struggle to rebuild Eastern is much longer, riskier and more difficult this time.

Even if he can win acceptance of his reorganization plan, he still faces three unions that have had few defections even as the Eastern strike nears the end of its fourth month, creditors with strong reservations about his strategy, competitors exploiting his airline's weaknesses as they did not do six years ago, more stringent bankruptcy laws and the scrutiny of a court-appointed examiner with broad powers.

While the strike has begun to cause some economic hardship for the rank and file, striking workers said in interviews that most were determined to hold out. ''We're not going to grasp at straws,'' Mike Opitz, a first officer who has been with Eastern for 10 years, said recently while he was on the picket line at La Guardia Airport. ''Lorenzo is not going to get a flood of people to cross the picket lines.''

He and other pilots on the line conceded that if there was no alternative they would look at what Mr. Lorenzo and Eastern's management offered them to come back. They were unanimous that there would have to be guarantees that Mr. Lorenzo would rebuild Eastern and tough provisions against major asset sales.

The Air Line Pilots Association yesterday asked the National Mediation Board to intervene in its talks with Eastern. An Eastern spokesman, Robin Matell, said company officials believed bankruptcy court proceedings would supersede the authority of the board.

Mr. Lorenzo, who plans to submit Eastern's reorganization plan within a few weeks, appears to be closing in on approval by the bankruptcy court and creditors. The plan would rebuild the carrier at about two-thirds of its former size, with lower labor costs. In a step to reduce its labor costs, Eastern last week asked the court to terminate its contract with its pilots so that it can take back striking pilots at lower wages and under more stringent work rules. Gain by Lorenzo Is Seen

Many people who have followed Eastern since the machinists' and pilots' unions crippled the carrier with a strike that began on March 4 say that Mr. Lorenzo is again in the driver's seat. ''There's only one group that has successfully put an airline through bankruptcy and they are employed by Texas Air,'' said John Pincavage, an airline analyst with Transportation Group Ltd.

''He has the same management team lined up to do the same thing again,'' he added, referring to Mr. Lorenzo and managers like Philip J. Bakes, the president of Eastern, who headed Continental through its reorganization.

Eastern's unions, Mr. Pincavage said, have lost the initiative in that they have failed to find a buyer able to persuade Mr. Lorenzo to sell Eastern. But Eastern's unions say that their effort to find a buyer is not dead, that Joseph Ritchie, a commodity trader from Chicago, is still lining up financing and strengthening a business plan that envisions a larger Eastern than that proposed by the airline's management.

Texas Air found the Ritchie group's earlier bid inadequate and a court-appointed examiner found the business plan unfeasible. Moves Were Quick in 1983

But despite his position of strength, Mr. Lorenzo has not been able to move as quickly in rebuilding Eastern as he did after placing Continental under Chapter 11 bankruptcy protection in 1983. In a matter of months that autumn he was able to persuade many union workers to cross picket lines and work at much lower wages and reduced benefits under rules that enabled Continental's management to vastly increase productivity.

He also caught his major competitors largely flat-footed with drastic cuts in fares that enabled Continental to rebuild traffic quickly. This time Eastern's competitors have exploited the strike. Carriers like Delta Air Lines, American Airlines and USAir have added capacity on some routes and begun service on others. The major carriers are also expected to match the lower fares Eastern would use to bring back customers. Stringent Laws an Obstacle

Bankruptcy laws were also less stringent in 1983. Mr. Lorenzo is not as able to repudiate union contracts as easily as he did with the pilots and machinists at Continental and then beat back efforts by the unions to have his bankruptcy filing overturned and their contracts reinstated.

The Federal Bankruptcy Code was amended in 1984 so that the terms of union contracts are no longer automatically suspended after a filing for protection under Chapter 11. Thus Mr. Lorenzo must persuade the court to suspend the contracts before he can institute wage cuts and more stringent work rules.

Harvey Miller, the lead counsel for Eastern in the bankruptcy proceeding, said that the cuts and new work rules were needed because the strike had damaged Eastern, making it more difficult to rebuild.

Another problem for Eastern is that its unions have had few defections, forcing Mr. Lorenzo and Eastern's management to take a defensive stance to conserve cash and try to rebuild slowly by hiring and training new pilots. At Continental many pilots quickly crossed the picket line and the long and expensive recruiting and training of new pilots was not necessary.

Also, when Mr. Lorenzo's team presented a reorganization plan for Continental, a large part of the airline was operating and showing some profits. The plan to restart Eastern comes at a low point for the airline. Eastern is operating less than 15 percent of its flights and is eating up its cash by covering losses it estimates at about $1.5 million to $2 million a day.

Mr. Lorenzo this time also faces unsecured creditors who have serious questions about restarting the airline by using cash raised from asset sales.

Sources close to the unsecured creditors' committee said Eastern's offer to reinstate creditors' claims if they adopted the business plan was not enough. ''To just reinstate them leaves them very insecure,'' one source said. ''They want collateral so that if the plan does not work they will not be hurt.''

If Eastern agrees to such demands it risks losing control of many assets, a condition it did not face during the Continental reorganization.

There is another major difference. This time, Eastern's management and Texas Air's actions are under the scrutiny of David Shapiro, an examiner given extraordinary powers when he was appointed by Burton R. Lifland, the chief judge of the United States Bankruptcy Court for the Southern District, in Manhattan, which is overseeing Eastern's reorganization. Transactions Examined

Mr. Shapiro has examined various transactions between Texas Air and Eastern and Continental to see whether there is cause to consider a motion by the pilots' union that a trustee be appointed.

Mr. Shapiro this week began an effort to bring the leaders of the pilots' union and Eastern together in Washington to see if they could resolve their differences and come up with a new contract agreement that would end the strike.

A session yesterday in Mr. Shapiro's law offices was attended by Mr. Bakes, the president of Eastern, as well as by other key Eastern negotiators and Jack Bavis, the chairman of the Master Executive Council of the Eastern Air Line Pilots Assocation and other key union officials.

Photo of Mike Opitz, a first officer with Eastern Airlines, on the picket line with Bill Bushy, another striking pilot at La Guardia Airport (NYT/Vic DeLucia)